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How Much Homeowner's Insurance Coverage do you Need?

New homebuyers are faced with many expenses and one of those is homeowners insurance. If you have a mortgage on your home, your lender will require you to have homeowners insurance. Even if you do not finance the purchase of your home, it is still a good idea to make sure that you take out a sufficient amount of homeowners insurance. Failure to do so can leave you opens for significant losses. Just how much homeowner's insurance coverage do you need; however?

There are many options available to you when you purchase homeowner's insurance. There are several factors which should be taken into consideration when determining how much homeowner's insurance you need. At a minimum, you will need to make sure that you have enough insurance in order to replace the property and the contents of the property in the event something should happen. It is also important to keep in mind that homeowner's insurance will cover the costs if you are found liable or responsible for injuries that someone may sustain while they are on your property.

There are six categories of homeowner's insurance and understanding each one will help you to determine how much homeowner's insurance is right for you.

HO-1: This is the most basic form of insurance. It covers only very specific threats and perils such as explosion, fire, windstorms, riot, theft, volcanic eruptions and vandalism.

HO-2: This type of homeowner's insurance is broader and covers additional perils that are not covered by HO-1. Perils covered under this category of insurance include falling objects, frozen pipes, faulty electrical units, weight of snow and ice and faulty heating systems.

HO-3: This is the broadest category of insurance. The only perils that are not covered under this category of insurance are war, earthquake and flood in most cases.

If you purchase an older that has been restored or you are planning to purchase a home and restore it yourself, you will generally find that the above mentioned categories of insurance are not sufficient. This is because your home may be more valuable than what a normal homeowner's insurance would cover. As a result, you will need to consider a category of homeowner insurance that would pay the amount you would need to cover the expenses related to replacing or repairing an older home. Category HO-8 is the best category to consider in this case.

When it comes o deciding exactly how much insurance you need, it is generally best to plan to purchase enough insurance to cover 100% of he cost of rebuilding your home at current construction costs. Keep in mind that this amount could be significantly different from the actual value of your home. If construction costs have risen in your area recently, you may need to insurance your home for more money than the actual market value. If you are unsure of how much you need in terms of insurance, consult your insurance agent or a local builder's association. Generally, you can multiply local construction costs per square foot by the square footage of your home to come up with a good estimate. If you have extras such as a Jacuzzi; however, you should plan for even more insurance.

When you actually purchase your home owner's policy, you will need to choose between a cash value policy and a replace cost policy. A cash policy will only pay for the current cash value of your home, less depreciation. Replacement cost policies will pay the amount that it will actually cost to rebuild your home. Replacement cost policies are typically more expensive; however, if your home is completely destroyed they can be far more beneficial.

Finally, make sure you purchase a sufficient amount of insurance to cover liability issues as well as the contents of your home. Remember that your home is not just the structure but all of your possessions as well. You will want to make sure you have enough coverage for those items. A typical policy provides coverage for between 50% and 75% of the value of the property. If your possessions are more expensive; however, you will need to consider purchasing more coverage for your contents.

In terms of liability insurance, a basic policy will typically provide you with between $100,000 and $300,000 worth of coverage. If your assets, including your home and a business if you own one, are worth more than that; you should consider purchasing more liability insurance to make sure you are completely protected in the event of a lawsuit.



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